Tempur-Pedic Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Tempur-Pedic (NYSE: TPX  ) . The mattress maker had a tough 2012 as overly optimistic projections for growth turned out to be unsustainable. But more recently, Tempur-Pedic has shown a few signs of recovery. Let's take an early look at what's been happening over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Tempur-Pedic

 

 

Analyst EPS Estimate

$0.55

Change from Year-Ago EPS

(34.5%)

Revenue Estimate

$339 million

Change from Year-Ago Revenue

(7.6%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Tempur-Pedic finally let investors sleep better?
From an analyst's perspective, Tempur-Pedic is a bit of a quandary. On the one hand, it has topped earnings estimates in each of the past four quarters. Yet part of that track record has come from issuing future guidance that forces analysts to pull back on expectations before earnings come out. For instance, just in the past three months, analysts have cut their fourth-quarter estimates by $0.24 per share. Yet the stock has rebounded sharply, up more than 35% since its plunge after its third-quarter report in late October.

Tempur-Pedic's woes come largely from the fact that mattresses are generally discretionary purchases that cash-strapped consumers can put off almost indefinitely. In particular, because it has traditionally aimed itself at the high end of the mattress market, Tempur-Pedic found itself vulnerable to slowing sales. Competitors Select Comfort (NASDAQ: SCSS  ) and Mattress Firm (NASDAQ: MFRM  ) have seen the same trends affect their businesses, with Mattress Firm, in particular, suffering a post-IPO letdown when spring sales failed to live up to expectations. Select Comfort has held up better from a share-price perspective but has also seen overall pressure in the industry affect its business.

But one big news item that investors will want an update on is Tempur-Pedic's planned acquisition of Sealy (NYSE: ZZ  ) . The move will help Tempur-Pedic diversify into the lower end of the mattress market, broadening its potential customer base and giving it the chance to up-sell Sealy consumers to its higher-end products. Having financed the deal through an offering of $375 million in notes back in December, it looks like the acquisition is on pace to close soon.

The recent bounce in the housing market has helped bring hope to industries that are connected with housing, and so Tempur-Pedic certainly has the chance to surprise investors on the upside. More important, though, will be whether Tempur-Pedic's future guidance will once again throw water on the enthusiasm about the stock.

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